SHARETIPSINFO >>Research Reports >>POST BUDGET SPECIAL  REPORT

‘Blessed is the man who expects nothing, for he shall never be disappointed’.

‘Those who play with cats must expect to be scratched’, this is exactly what happened to our Indian stock market when our finance minister started budget speech. Market loaded with expectation got scratched it moved into red and kept on falling. Sensex fell by more than 900 points on Monday and Nifty by 300 points.
It was not that budget delivered by our Finance Minister Pranab Mukherjee was bad but the fall was more attributed to the expectation that got build in the stock price. Irrational exuberance in the market is the only reason.
We feel Finance Minister has done the right job in balancing the expectation of different segment of the society and resources available to fulfill this expectation. Though our fiscal deficit is projected to increase to 6.8% in 2009-10 which was one the main reason for fall in the market but it is need of the hour that govt should step up investment in key areas. Fiscal deficit is widest since the beginning of the reform.

BUDGET AT GLANCE:

HIGHLIGHTS OF THE BUDGET 2009-10:

GDP growth seen at 6.7%2.
Significant inflow of foreign capital is important.
Signs of revival in domestic industry and foreign investors have returned.
To continue with efforts to provide fiscal stimulus.
To ensure more flexibility to infrastructure finance co.
Allocates Rs 5 bn for Mumbai flood project.
To raise allocation for urban poor schemes to Rs 39.73 bn for FY10.
Agriculture credit target at Rs 3.25 trillion.
Farm loan scheme extended by 6 months.
JNMURM allocation increased by 80%.
 Allocation for NHAI increased by 23% (yoy).
 To develop National Gas Grid.
 2% interest subvention for exporters till March 2010.
 1% interest subvention for farmers making timely payment.
 Plans to set up panel to review domestic fuel prices.
 To provide additional Rs 10 bn over interim budget for irrigation.
 Export credit guarantee extended.
 Aim to return to FRBM targets at the earliest.
 PSU banks & insurance companies to remain in public sector.
 NREGA allocation of Rs 391 billion, an increase of 44% over previous year.
2% interest subvention for pre-shipment.
 PSU co to remain in public sector.
 Allocation for Bharat Nirman to be increased by 45%.
 To set up 2 handloom and 1 power loom cluster.
 To allocate Rs 20 bn for rural housing under National Housing Bank.
 59% increase in allocation for rural roads scheme for FY10.
 Propose to raise the threshold for non-promoter holding in all listed companies.
To offer direct subsidy to farmers.
 Allocation of Rs 21 billion for defense pension annually.
 Allocation for Commonwealth Games rose to over Rs 34 bn.
 To allocate Rs 1.2 bn for Unique National ID project.
 Outlay of Rs 17.40 bn for ministry of minorities.
 To spend Rs 10,200 bn total expenditure in FY10.
 Outlay for defense at Rs 1,410 bn.
 FY10 planned expenditure at Rs 3,250 bn.
 Fiscal deficit projected at 6.8% in FY10.
 Revenue deficit projected at 4.8% in FY10.
 GST to be implemented by April 1, 2010.
 GST to be dual regime with central and state terms.
 No change in direct tax for corporate.
 New code for direct tax within 45 days.
 IT exemption limit for raised by Rs 15,000 for senior citizens.
 Surcharge of 10% on personal income tax removed.
 FBT abolished.
 Propose to extend Sunset clause by 1 year.
 Surcharge on corporate tax to continue.
 Minimum alternative tax (MAT) hiked from 10% to 15%.
 Commodities transaction tax to be abolished.
 To introduce new investment linked tax sops.
 No STT on sale/purchase of shares by NPA trust.
 To extend tax holiday on gas production.
 Carry forward period for MAT credit increased from 7 year to 10 years.
 To maintain the overall rate structure for excise and customs.
 To reduce customs duty on LCD panels to 5%.
 To impose 5% customs duty on set top boxes.
To reduce customs duty on 10 lives saving drugs to 5% from 10%.

AMBITIOUS AIM TO PRUNE FERTILISER SUBSIDIES:
Fertilizers subsidy got reduced from drastically from Rs758.49 billion to Rs499.8 billion, a sharp reduction of about Rs250 billion.
This implies that putting into action the expected change in fertilizer subsidy regime mentioned in the budget speech.
This will introduce a fair amount of uncertainty in the fertilizer sector. Fertilizer stocks are likely to face the brunt.

IMPACT ON DIFFERENT SECTORS OF THE ECONOMY:
AUTOMOBILE: We remain neutral on the sector. The reduction of specific additional duty on passenger car and utility vehicle is expected to have very small or no impact on the sector.

BANKING: We are negative on the banking sector. The emphasis on priority sector lending will lower the profit margin.

CEMENT: We remain neutral on the sector. Excise as expected did not increased so we feel stock won’t be taking big hits.

INFRASTRUCTURE: We remain negative on the sector as the implementation of NHDP is expected to remain slow.

INFORMATION TECHNOLOGY: We remain negative on the sector as increase in MAT to 15% will negatively impact the sector.

OIL&GAS: We feel increase in MAT will negatively impact the sector.

POWER: There was no major important announcement on the sector. We remain neutral on the sector.

TEXTILE: We remain positive on the sector. As the interest cost for the exporter will decline 1% on account of extension of 2% interest subventions on pre and post shipment export credit until March 31, 2010.

PHARMACEUTICALS: We remain neutral as the negative impact of increase in MAT will be offset by the abolishment of fringe benefit tax.

STEEL: We remain marginally negative on the sector as the custom duty on steel remained same. And there is every chance of dumping of steel. The sector is having excess capacity.

BUDGET CONSISTENT WITH STABLE OUTLOOK……MOODY`S:
Current budget for FY2010is consistent with a stable outlook on its sovereign rating, although the commitment to cut a debt overhang was weak, rating agency Moody`s Investor Service was quoted as saying.
“This is clearly a growth- oriented budget and contains a slightly larger than expected headline deficit number, but it is broadly consistent with near term stability in the government’s debt trajectory”, stated the report.
Moody`s has Baa3 foreign currency rating and Ba2 local currency sovereign rating, which is non investment grade on India.

SENSEX PERFORMANCE – ONE MONTH PRE AND POST BUDGET ANNOUNCEMENT:

CONCLUSION:
Budget as expected is not a popular budget. But good thing about the budget is that government has increased its spending. The focus on rural sector is seen in the budget. The impact of the budget could be seen in the long term. We are happy that Finance Minister has not sacrificed the long term objective just to appease the short term market. The budget is growth oriented. We are very happy to see the bold steps taken by our Finance Ministers.
The fall in the market is because of the valuation and expectation that got build in the pre budget.

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